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The Fed cut made no change to rates, but is September still "in play"? See our review of The latest move by the Federal Reserve and what it means for mortgages and more.

The Fed cut made no change to rates, but is September still "in play"? See our review of The latest move by the Federal Reserve and what it means for mortgages and more.

Can I use an equity loan to pay off my mortgage?

Keith Gumbinger

Q: My home is valued at $195,000. I owe $127,000 on the mortgage. I want a 10 year equity loan to pay off the mortgage. Can I find lenders to do this?

A: Certainly! However, you'll find that rates for fixed-rate home equity loans (second mortgages) are usually much higher than those on first mortgages -- anywhere from a couple to several percentage points higher.

Not all lenders still make traditional lump-sum home equity loans, but many will allow you to take out a home equity line of credit (HELOC) and convert it into a fixed-rate, fixed-term repayment schedule. However, the same higher-than-a-first-mortgage-rate issue applies, so even if the upfront costs to use this method of paying off your existing loan may be low, you'll likely spend a lot more in interest than you would if you had considered other options.

A short-term first mortgage -- 15 years or less -- can be had at about 4% or so, and many community banks and credit unions will write you a new 10-year first mortgage to pay off your old loan.

Shop around; it shouldn't be too hard to find mortgage lenders to offer you great ten-year first mortgage rates, but if you cannot find one that works for you, consider a 15-year term, then simply make extra payments to make your mortgage any term you want.

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